Occidental Petroleum 2002 Annual Report Download - page 55

Occidental is a multinational organization whose principal business
segments are oil and gas exploration, production and marketing and chemicals
production and marketing. In oil and gas, Occidental has active exploration and
production in the United States and in ten other countries. Occidental has
interests in basic chemicals (principally chlorine and caustic soda), vinyls and
performance chemicals.
RISKS AND UNCERTAINTIES
The process of preparing consolidated financial statements in conformity
with generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the consolidated financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts, generally not by
material amounts. Management believes that these estimates and assumptions
provide a reasonable basis for the fair presentation of Occidental's financial
position and results of operations.
The carrying value of Occidental's property, plant and equipment (PP&E) is
based on the historical cost incurred to acquire the PP&E, net of accumulated
depreciation and net of any impairment charges. Occidental is required to
perform impairment tests on its assets whenever events or changes in
circumstances lead to a reduction in the estimated useful lives or estimated
future cash flows that would indicate that the carrying amount may not be
recoverable, or when management's plans change with respect to those assets.
Under the provisions of Statement of Financial Accounting Standards (SFAS) No.
144, Occidental must compare the undiscounted future cash flows of an asset to
its carrying value.
Included in the accompanying consolidated balance sheet are deferred tax
assets of $733 million as of December 31, 2002, the noncurrent portion of which
is netted against deferred income tax liabilities. Realization of these assets
is dependent upon Occidental generating sufficient future taxable income.
Occidental expects to realize the recorded deferred tax assets through future
operating income and reversal of taxable temporary differences.
The accompanying consolidated balance sheet includes assets of
approximately $2.8 billion as of December 31, 2002, relating to Occidental's
operations in countries outside North America. Some of these countries may be
considered politically and economically unstable. These assets and the related
operations are subject to the risk of actions by governmental authorities and
insurgent groups. Occidental attempts to conduct its financial affairs so as to
mitigate its exposure against such risks and would expect to receive
compensation in the event of nationalization.
Since Occidental's major products are commodities, significant changes in
the prices of oil and gas and chemical products would have a significant impact
on Occidental's results of operations for any particular year.
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FOREIGN CURRENCY TRANSLATION
The functional currency applicable to all of Occidental's foreign oil and
gas operations is the U.S. dollar since cash flows are denominated principally
in U.S. dollars. Occidental's chemical operations in Brazil use the Real as the
functional currency. The effect of exchange-rate changes on transactions
denominated in nonfunctional currencies generated a loss of $26 million in 2002
and a gain of less than $1 million in both 2001 and 2000. The 2002 amount
related to the writedown and sale of Occidental's Vulcan subsidiary.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid money-market mutual funds and
bank deposits with initial maturities of three months or less. Cash equivalents
totaled approximately $116 million and $139 million at December 31, 2002 and
2001, respectively.
TRADE RECEIVABLES
Occidental has an agreement in place to sell, under a revolving sale
program, an undivided interest in a designated pool of trade receivables. This